Once again, I have come across a disconnect between the surveys on consumer confidence and the reality of consumer spending.
A solid gain for auto sales in July made for a very strong gain in non-revolving credit, which rose $15.4 billion. Non-revolving credit has now risen for 11 straight months.
In July, consumers continued taking out loans to buy big-ticket items, such as cars, as the July auto sales followed strong auto sales in June. Interestingly, revolving credit (credit cards) for July actually dropped $3.4 billion after a $5.2 billion jump in June. The June dollars for non-revolving credit were $10.3 billion, so July is just about a 50% increase. How does any of this square with consumer confidence hitting record lows in August?
Here is one more discobobulation. The latest reports from the retail sector point to decent sales at the high end and improving sales at both the middle and lower ends. Since credit card usage dropped in July, this must mean consumers are paying with cash, which suggests there is a concern about taking on more debt. This sentiment more accurately reflects the consumer confidence surveys, but it also points to a problem with the interpretation of the surveys. Low consumer confidence does not necessarily mean consumers will not spend; they just spend more wisely. Regarding a fall back into recession, this is good news. The consumer is not running for the hills, despite the rash of negativity.
Yet, and still, here is one more piece of data to add to the mix. The wholesale inventory data that came out today said wholesale inventories were up again, but sales were flat. So what does one do with that when trying to gauge the economic flow as it relates to the consumer? Perhaps, switching indicators might help.
Equities mutual funds attracted $581.3 million in net inflows in the week ended Wednesday, nearly half as much as the week before, says Lipper. But the positive numbers did extend the group’s run and marked the third out of the past four weeks in which stock funds have garnered inflows rather than outflows.
True, retail investors are not consumers, per se, but they are folks like you and me, and they do reflect a level of confidence in both the economy and the market. The inflow is in stark contrast to the outflows seen in May, June, and July. There is still some ground to make up here, but the trend is good, especially as it flies in the face of the dismal news we have mostly seen in August.
All of this suggests to me that both the economy and the market will be choppy, but neither is on the verge of collapse. It further suggests that with the continued softness in commodity prices, specifically oil, the August/September numbers for consumer spending will improve, which will bolster both business and consumer confidence. Now, if we can only get the media to change its attitude about things …
Trade in the day – Invest in your life …
